Singapore: Market Market Report - March 2019

MARKET REPORT Singapore: Hotel Market

MARCH 2019 Singapore: Hotel Market Market Report - March 2019

Introduction The 2019 new year kicked off with a bang as the first Efforts have included promotional campaigns such as dedicated hotel use site (Club Street) put up for tender “Singapore: Passion Made Possible” and developing under Singapore’s Government Land Sales (GLS) program Singapore into a leading Meetings, Incentives, Conferences in over a decade sold for a whopping SGD562 million and Exhibitions (MICE) destination. (USD414 million). The winning bid translates to SGD 2,148 (USD1,583) per square foot per plot ratio (psf ppr), Visitor arrivals over the past 10 years have grown at surpassing the second-placed bid price by 12 percent and a Compound Average Annual Growth (CAAG) rate of exceeding last year’s winning bid for a redevelopment site 6.7 percent, reaching an estimated 18.5 million visitor (into hotel use) on nearby Hill Street by some 22 percent. arrivals in 2018.

Such aggressive land pricing is understood to signify the This exceeds official estimates of 17.6 to 18.1 million on prevailing strong market confidence in Singapore’s resilient the back of enhanced publicity fromthe ‘Trump-Kim Summit tourism sector, buoyed by the medium-term outlook for 2018’ and the Hollywood film ‘Crazy Rich Asians’. The limited new supply growth in land-scarce Singapore. With strong performance also benefitted from global economic demand and supply growth expected to continue diverging, optimism and improved flight and cruise connectivity. investor interest will be heightened for both acquisitions and new development. On the latter, STB has proven successful in expanding Chinese demand from second- and third-tier cities through Visitor arrivals to Singapore has always been a market marketing to local tour agents. The cruise segment has strength. Since 2000, there have been only three instances also grown popular with Indian travellers who enjoy the of contraction – 2003’s Severe Acute Respiratory convenience of visiting multiple destinations on a single Syndrome (SARS) Outbreak, 2009’s Global Financial Crisis trip. (GFC) and 2014’s Malaysian Airline Twin Tragedies – but all were short-lived, testament to the market’s resilience in overcoming adversities through proactive intervention by Singapore Tourism Board (STB) to drive demand.

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Visitor Arrivals, 2009 – 2018e

20,000,000 25% 20% 16,000,000 15% 12,000,000 10%

Arrivals 8,000,000 5% Growth

0% 4,000,000 -5%

0 -10% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e

Visitor Arrivals Arrivals Growth Source: Singapore Tourism Board

Top 10 Source Markets, 2018 vs 2014

Nationality Mix 2018 Nationality Mix 2014 The demand changes have caused a structural shift in Singapore’s market line-up. In 2017, officially PR China (+1) 19% 20% deposed Indonesia’s 20-year reign as the biggest source market making up 19 percent of demand whilst Indonesia Indonesia (-1) 16% PR China 11% fell to 16 percent. Growth from India has also been strong, India (+2) 8% Malaysia 8% rising two positions with a market share of 8 percent in 2018. Malaysia (-1) 7% Australia 7%

Australia (-1) 6% India 6% Little is changed in the middle of the list, but the and are new entrants to the top ten in 5% Japan 5% the ninth and tenth spots. 4% Philippines 4% Newly introduced technologically-advanced aircrafts South Korea (+1) 3% Hong Kong SAR 4% have allowed the reopening of direct flight routes for United States (+2) 3% South Korea 4% both United States (US) east and west coast destinations. This allowed the US to climb two spots as Singapore Vietnam (+3) 3% 3% strengthens its attractiveness as the gateway to . Others 26% Others 26%

Source: Singapore Tourism Board Accelerated economic development in Vietnam and expansion of its national carrier has enabled more Vietnamese to travel abroad, pushing the country up by three spots. Singapore’s appeal to the Vietnamese lies in its futuristic cityscape, clean environment and gaming offerings.

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Singapore Tourism Receipts, 2009 – 2018e

30.0 60%

50% 25.0

40%

20.0 30%

15.0 20% Growth SGD (Billions) SGD

10% 10.0

0%

5.0 -10%

- -20% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e

Tourism Receipts YoY Growth Source: Singapore Tourism Board

Altogether, the top ten source markets continue to In 2018, total tourism receipts are estimated to have hit a contribute 74 percent of total demand. However, demand new historical high of SGD 27.1 billion, but with per capita now relies more heavily (approximately 3 percentage points spending hitting an 8-year low of SGD 1,464. This is 13.4 more) on emerging economies, contributing to a new issue: percent lower than 2011’s historical high of SGD 1,693, and lower per capita spending. indicative of the overall negative trend affecting businesses and room rates.

Hotel Market Performance Indicators, 2009 – 2018e

300 90%

250 85% 200 80% 150

100 75%

50 70% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e

Average Daily Rate (ADR) Revenue per Availabe Room (RevPAR) Occupancy (OCC)

Source: Singapore Tourism Board

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Room Nights Supply & Demand, 2009 – 2018e

25 90%

20 85%

15 80%

10 75%

5 70% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e

Room Nights Available (RNA) Room Nights Demand (RND) Occupancy (OCC)

Source: Singapore Tourism Board

Average Daily Rate (ADR), which had recovered post-GFC Between 2009 and 2018, Room Nights Demand (RND) up till 2012’s high of SGD 244, was generally falling since, grew 74.6 percent whilst Room Nights Available (RNA) reaching a low of SGD 216 in 2017 but recovering in 2018 growth was significantly higher at 85.5 percent. This to an estimated SGD 219. This trend can be explained divergence was accelerated between 2014 – 2017, by three compounding factors – 1. Increased reliance instigating room rate reductions across the market as on emerging markets with lower propensity to spend, 2. means to shore up occupancy figures by attracting demand Marginally higher proportion of economy and mid-tier from competitive and local sources (staycations became supply which has a suppressive effect on market-wide ADR, increasingly popular as a result). Additionally, the hotel and 3. Strong supply growth through 2017 creating a slack industry faced some rivalry from home-sharing platforms, in the market. though the impact is somewhat muted with short-term rentals remaining illegal under the law for both public and private establishments.

(Note: Singapore’s Urban Redevelopment Authority (URA) is considering a revised scheme enabling short-term rentals in private housing buildings, provided majority of unit owners approve its operations.)

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Segmented Hotel Market Performance Indicators, 2014 – 2018e

500 100% 87% 88% 87% 87% 88% 450 86% 85% 86% 85% 86% 84% 85% 85% 86% 83% 82% 84% 90% 78% 78% 77% 400 80%

350 70%

300 60%

250 50%

200 40% Occupancy (OCC) Occupancy Singapore Dollars (SGD) 150 30%

100 20%

50 10% ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR 0 0% 2014 2015 2016 2017 2018e 2014 2015 2016 2017 2018e 2014 2015 2016 2017 2018e 2014 2015 2016 2017 2018e Luxury Upscale Midscale Economy

Source: Singapore Tourism Board

Splitting the market up into four major segments – luxury, In 2018, the market officially entered a period of upscale, midscale and economy – it becomes apparent consolidation as supply growth slowed while demand 2018’s exceptional performance was not restricted to picked up. RNA growth for 2018 is estimated to be 4.1 any segment. RevPAR improved across the board, albeit percent, 2.3 basis points (bps) below the 10-year CAAG of more so for luxury and economy which performed 6 6.4 percent. and 5 percent better YoY respectively, while Upscale and Midscale hotels improved their RevPARs by 3 percent each. However, the year saw two new and interesting brands entering the market. Six Senses opened a combined 187 The strong performance by economy hotels is fuelled by rooms at its two properties – Six Senses Duxton (49 keys) the Chinese’s preference for affordable options. Thus, most and Six Senses Maxwell (138 keys). The two properties of its RevPAR improvement came from an improvement in are housed in conserved historical buildings and mark the occupancy as opposed to ADR. Separately, luxury hotels brand’s first foray into creating city hotels. stood to gain from a strong media presence leading up to and during the Trump-Kim Summit 2018. The event helped The year also saw the opening of the 157-key Capitol the segment recover from 2017’s low which witnessed a Hotel Singapore. Originally slated to open as large influx of luxury openings (over 800 keys), including the Patina Singapore, it was delayed due to a drawn-out Sofitel Singapore City Centre, InterContinental Robertson dispute between the owners, two of Singapore’s top Quay and Andaz Singapore. developers. The resulting Capital Kempinski is expected to vie for Singapore’s top luxury hotel status along with the Capella, Fullerton Bay Hotel and The Raffles (when it reopens in mid-2019 after an extended renovation project).

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What Next? Hotels Opening in 2020-2023 Name Keys Segment Year Hotels Opening in 2019 The Clan 292 U. Midscale 2020 Name Keys Segment Aqueen Hotel Geylang 100 Economy 2020 Sentosa 606 Midscale EDITION 190 Luxury 2021 Capri by Frasers China Square 304 Upscale Artyzen 150 Luxury 2021 Dusit Thani Laguna Singapore 208 U.Upscale Pullman 342 U. Upscale 2022 The Outpost Hotel 193 Upscale TBD (Banyan Tree 400 Luxury 2023 YOTELAIR Changi 130 Midscale to manage) The Barracks 40 Upscale Source: Horwath HTL Source: Horwath HTL Beyond 2019, Singapore continues to attract new and 2019 will see a shift in the development trend as hotels interesting brands to the city. Particularly, half of the open outside the Core-Central Region (CCR). Of note, new brands are lifestyle brands – The Clan, Artyzen, and Sentosa will have a 25 percent jump in RNA with an EDITION – representative of the shift to younger travellers additional 839 keys spread across three hotels (Village, who prefer interactive communal space and a differentiated The Outpost and The Barracks) being developed by Far experiential stay. The market will also have homegrown East Organization. This might cause some rate depression Banyan Tree finally operating accommodations in Singapore in the near-term as the hotels ramp up. as part of an eco-friendly development in Mandai, the potential segmentation of the project’s 400-keys into On the other end of Singapore, Dusit Thani Laguna will be separate products and branding have not yet been finalized. the first golf-course related hotel in Singapore. It will help cement the east as the go-to golfing destination just as The development will incorporate nature conservancy Singapore Land Authority (SLA) begins winding down golf into its design and operations and will be part of Mandai’s courses elsewhere in the state. rejuvenation project. The project includes the relocation of Jurong Bird Park and the development of a new Rainforest Park in the same area as the Singapore Zoo, Night Safari and River Safari.

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Orchard Road and Sentosa will also undergo their The prospect of development opportunities within the respective rejuvenation programs. Orchard Road seeks to locality will alleviate the shortfall in available space include better “pop-up” activities to attract crowds, more elsewhere, a positive advancement towards furthering walking options, and permanent attractions. The lead Singapore’s tourism sector. It will also help boost traffic committee is also exploring ways at incubating local talent flow to Sentosa, integrating the attraction closer to its in design and fashion, affording them opportunities to mainland counterparts. showcase their works. Other Potential Development Sites Sentosa will be reshaped to offer more leisure amenities URA Sites Location Status and investments, along with better infrastructure and URA White Site Available for Marina View accessibility. The island will be redeveloped as part of a (Reserved List) application larger area including adjacent Pulau Brani and Tanjong Available for URA Hotel Site Pagar, providing exciting opportunities to develop new Sims Avenue application in (Reserved List) tourism attractions and anchor this precinct as the Southern May 2019 Gateway of Asia. Wallich Street Tanjong Pagar Rd The rejuvenation projects are much needed as Singapore’s Merchant Loop existing attractions begin to age. Since 2010 (opening Zion Road of Marina Bay Sands and Resorts World Sentosa), there Clemenceau Ave have not been any further game changing developments. Stadium Lane Zoned Hotel Masterplan 2014 However, the to-be-vacated city-port will present the Stadium Road Development optimal prospect for development given its size and Kallang Airport Way location. No definite plans have been announced, but an Old Terminal Lane overall view has been taken on how the whole area can be Bukit Timah Road developed for tourism as well as commercial and residential Mayne Road purposes. Cuscaden Road Source: Horwath HTL

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Analysing Masterplan 2014 in greater detail for sites The current period of consolidation offers a reprieve for which have been zoned hotel development, the clues point hoteliers. Particularly, tourist arrivals should continue to toward the same finding. grow notwithstanding exigencies, although at a slower pace relative to 2018’s 6.2 percent. Development will shift outside of the CCR as there remains few remaining green-sites within. New potential hotspots As a result, market occupancy is expected to grow into have emerged in the Stadium precinct - particularly around the high 80s, giving hotelier’s compression and confidence the dysfunctional Kallang Airport and in the peripherals of to push for ADR growth. Given the lacking pipeline in Little India. Their distance from the city-centre will likely existence, ADR growth is expected for at least the next limit their development potential to midscale and upscale 3 to 5 years. segments. By contrast, the Tanjong Pagar redevelopment area will likely skew towards upscale and luxury projects. A sustainable yearly RevPAR rate of growth would be in the range of 4 - 5 percent.

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SGD’s Relative Appreciation Against Competitive Currencies (Base Year 2009)

60%

50%

40%

30%

20%

10%

0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

-10%

-20%

EUR GBP USD MYR IDR THB RMB INR AUD

Source: Singapore Tourism Board

Macro Economic Outlook Certainly, key macroeconomic threats may undermine Being a gateway city, Singapore stands to lose in the Singapore’s healthy market performance. These include: ongoing dispute as business demand between the regions 1. Currency appreciation against main inbound markets; are reduced. The rhetoric between Washington and Beijing 2. Trade-war between United States and China; has fuelled uncertainty amongst business leaders, reducing 3. Potential rising interest rates. their risk appetite in furthering business investments.

Setting 2009 as the base year, the Singapore dollar has Rising borrowing costs may also decrease business and strengthened against the currencies of all top ten source consumer travel as liquidity is tightened. For the past 3 markets, indicative of the currency’s strength and tendency years, the Federal Funds Rate has climbed 250bps from to appreciate. This undermines Singapore’s affordability as a 0.25 percent. This is accompanied by Interbank travel destination especially for its geographical neighbours Overnight Rate which has also creeped up around 200bps mainly comprising emerging economies. since 2015.

With lower disposable incomes, foreign exchange rates thus Other major financial markets such as Australia and form a large part of their travel destination considerations. Eurozone hold steady. Together, this represents a combined Their ability to spend also affects Singapore hotels’ abilities stance by the global economy towards contractionary to push for ADR growth. monetary policy that seeks to limit inflation. The contractionary policies increase the cost of doing business The China-United States trade war casts a shadow over the and limit investment opportunities. entire world’s economy, just as performance has stabilised from the GFC. The two countries are engaged in disputes over tariffs imposed on goods traded between them. In effect, this reduces the amount of trade occurring and thus diminishing the flow of goods through Singapore’s transhipment hub.

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Conclusion The gears of Singapore’s hotel market are in tune for continuing the forward march with no immediate concerns impeding progress.

The conditions are conducive for ADR growth although hoteliers remain cautious against the threatening backdrop of an economic slowdown. Any drastic push is likely to be undermined.

As news outlets post a constant reminder of the potential trade war, STB can ease the headwinds through pursuing the planned rejuvenation projects of key attractions to help drive market confidence and demand growth.

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Author: Horwath HTL Horwath HTL is the world’s largest consulting organization specialized in the hospitality industry, currently with Benjamin Oh 50 offices in 39 countries. Established in Asia in 1987, Consultant Horwath HTL has been involved with thousands of hotel Horwath HTL Singapore and tourism related projects throughout the region for [email protected] clients ranging from individually held businesses to the world’s most prominent hotels, developers, lenders, investors and industrial corporations on issues pertaining After graduating from Singapore Management University the development, financing, operations, asset management, in December of 2017, Benjamin joined Horwath HTL. His and valuation of hotel and other hospitality related work, thus far, has focused on financial feasibility, market properties. reporting and investment analysis for projects across Asia- Pacific, including Malaysia, Singapore, and Vietnam. Horwath HTL now operates offices in several key cities throughout the Asia Pacific region, including Hong Kong, Beijing, Shanghai, Tokyo, Singapore, Kuala Lumpur, Jakarta, , Mumbai, Sydney and Auckland. Our regional offices work together to ensure our clients receive a multi- skilled international perspective for their projects.

We are Horwath HTL, the global leader in hotel, tourism and leisure consulting .

Horwath HTL Singapore 15 Scotts Road, #08-10/11 Thong Teck Building Singapore 228218 Tel: +65 67 351 886 email: [email protected] www.horwathhtl.asia

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